The need for finances in the business grows in parallel to its expansion. The business owner may think of taking a business loan at least once in the lifetime of the business to address various needs. If you have plans to take a commercial loan in future to address your business needs, it is important to keep your personal credit profile intact. Most of the business owners will leap towards the personal loan to address start-up needs of the business as it is hard for them to find a commercial loan at the stage of the business. The current article is about how your personal loan credit profile is going to impact business loan.
Is Your Personal Loan Credit Score Going To Impact Business Loan?
In general, business is treated as a separate entity so, in a wider concept business finances are separate from personal finances. Following this concept, your personal finances should not have any effect on your business lending but, there are few scenarios where this concept is not applicable.
A sole proprietorship is entirely different from other types of business like a partnership, public limited companies where the liability is limited to business only. When it comes to a sole proprietorship, lending institutions do not separate you from the business. As the business is owned and run by a single person, there is no distinction between the person and entity so, they make a mandate to scrutiny your personal credit profile if you approach them with the request to sanction the commercial loan.
Private limited company
Your personal credit score will come into play when you apply for the commercial loan even if you are a private limited company with start up business. As you have very little transactions to show future income projections of the business. In such cases, the lender does not have much detail to base their decision on. As these cases are termed as thin files, the lender may call for personal credit records of the promoters to make a decision. If you are small private limited company approaching the bank to request a commercial loan, a glance is given at promoter’s credit records to come up with some sort of analysis.
How is personal loan credit going to impact business loan?
If a sole proprietor wants to get a business loan, it is important to keep the personal credit score intact to get the business loan at a good rate of interest. While there are many advantages of running a sole proprietorship, the fortune of your company is directly dependent on your personal credit history. Bad credit history will end up in the rejection of the loan. Any loan defaults in your credit profile many fetch you the business loan at a high rate of interest. Not only that, any personal debts in your portfolio will decrease the amount of loan you get the business. It is very important to keep your personal credit score intact to get the approval of the desired amount of commercial loan at best interest rate.